Annual Recurring Revenue
ARR represents the annualized value of recurring subscription revenue, typically used by companies with annual contracts or significant enterprise business.
- ARR is the value of recurring revenue normalized to a one-year period, calculated by taking MRR and multiplying by 12 or summing annual contract values.
- Common Mistakes:
- Using ARR for monthly subscription businesses where MRR is more appropriate.
- Including multi-year contract values without normalizing to annual amounts.
- Counting non-recurring revenue like implementation fees in ARR.
- Not adjusting ARR when customers downgrade or partially churn mid-contract.
- Mixing bookings with ARR (bookings is future committed revenue; ARR is current run-rate).
- Calculating ARR from total revenue instead of recurring subscription revenue only.
Definition
ARR is the value of recurring revenue normalized to a one-year period, calculated by taking MRR and multiplying by 12 or summing annual contract values.
Company is adding more annual contract value than it's losing.
Often signals readiness for scaling or Series B fundraising.
May indicate concentration risk or seasonal patterns.
Formula
ARR = MRR × 12 OR ARR = Sum of all annual contract values
Variables
Monthly recurring revenue from all active subscriptions.
Total value of active annual subscription agreements.
Examples
ARR from MRR
| Month | MRR |
|---|---|
| January | $45,000 |
| February | $48,000 |
| March | $50,000 |
- 1Use most recent MRR: $50,000
- 2ARR = $50,000 × 12 = $600,000
Track in Daymark
Data Sources
Required Fields
- customer_id
- annual_contract_value
- start_date
- end_date
Sample Questions
- What is the current ARR?
- Show ARR growth quarter over quarter
- Calculate new ARR and churned ARR for current quarter
- What is our ARR by customer segment or industry?
- Show ARR cohort retention over time
- Which sales rep or team has generated the most ARR this year?
- Forecast ARR for next quarter based on pipeline
Dashboard Template
Quarterly or monthly ARR trend
New, expansion, contraction, and churn
Enterprise vs SMB vs mid-market
Monthly or quarterly net ARR additions
Common Mistakes
- •Using ARR for monthly subscription businesses where MRR is more appropriate.
- •Including multi-year contract values without normalizing to annual amounts.
- •Counting non-recurring revenue like implementation fees in ARR.
- •Not adjusting ARR when customers downgrade or partially churn mid-contract.
- •Mixing bookings with ARR (bookings is future committed revenue; ARR is current run-rate).
- •Calculating ARR from total revenue instead of recurring subscription revenue only.
FAQ
Use ARR if you primarily sell annual contracts or are enterprise-focused. Use MRR for month-to-month or shorter contract cycles.
Take the total contract value and divide by the number of years to get annual run-rate.
No. ARR is recurring subscription revenue annualized; annual revenue includes all revenue types.